The Tesla (NASDAQ: TSLA) share price hasn’t had the best year so far, down 3.3%. After coming within touching distance of $500 late last year, the shares fell into a steady decline.
The shares are now trading at around $423, and shareholders are probably wondering when the next leg up is. Well, a proposed merger with SpaceX ahead of the IPO could be just what they need.
But would an electric car company and a space exploration startup be the best of mates — or a match made in hell?
How a merger might impact the price
A merger could move Tesla’s price in either direction. Three mitigating factors matter most: the exchange ratio, SpaceX’s implied valuation, and whether investors see the deal as value-creating or dilutive.
On the bear side, there’s some fear of a ‘conglomerate discount’. Earlier this year, analyst Gary Black warned a Tesla-SpaceX merger could reduce Tesla’s value by 20%–25%. That implies about $750bn in lost value, if Tesla’s multiple applies to the combined entity.
He said the deal “makes no sense mathematically” for Tesla shareholders unless it delivers unusually strong synergies.
Then there’s the bulls, one of whom sees a possible $450bn valuation rise for Tesla.
According to investor Alexandra Merz, a 50/50 SpaceX-Tesla merger could revalue Tesla from $1.6trn to $2.05trn. Her hypothetical scenario envisions an even split of a combined $4.1trn entity.
However, there’s been no specfic agreement yet on how a split could look.
What does this mean for investors?
Tesla could become more event-driven and volatile. If announced, the stock will likely reprice toward the implied merger value until the final structure becomes clear.
If something is announced, investors should watch whether the deal is framed as a merger, acquisition, or strategic tie-up.
SpaceX’s S-1 shows Musk holds 42% equity but commands 85% voting power, meaning any merger structured as SpaceX acquiring Tesla would convert public Tesla holders into Class A stock with substantially reduced governance rights.
| Scenario | Implied Tesla impact |
|---|---|
| SpaceX acquires Tesla at IPO valuation | Short-term gain, governance dilution |
| Tesla acquires SpaceX | Possible 25% downside unless rare premium earned |
| No merger, SpaceX IPO alone | Could still be positive due to Musk connection |
My verdict?
A merger would likely be positive for Tesla in the short run, if it signals a premium SpaceX valuation and strong investor demand.
Even with no merger, Tesla would likely benefit from a successful SpaceX IPO due to the Musk connection. But investors should brace for a possible ‘buy the rumour, sell the news’ outcome, leading to a brief dip.
Either way, I think Tesla remains a compelling stock to consider now. The stock is already showing early signs of growth on the news, up 10% in the past month.
UK investors keen on exposure to both SpaceX and Tesla might also consider Scottish Mortgage Investment Trust. Although it’s drastically reduced its position in Tesla recently, it holds a notable stake in SpaceX.
For those more interested in the ‘green’ appeal of EVs, the iShares Global Clean Energy ETF also holds Tesla, among a basket of solar, hydrogen, and utility companies.
Should you invest £5,000 in Tesla right now?
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Mark Hartley owns shares in Scottish Mortgage Investment Trust.
